Income Tax in Lithuania

Whether it’s a forward-looking company or a diligent individual, being part of a well-functioning, fairly-structured and transparent taxation system is essential for reaching business and personal goals with assurance and ease.  Lithuanian taxation system is ranked among the top 5 EU countries for the least time-consuming tax payment processes, which suggests that you don’t have to worry about the bureaucracy and can focus on what really counts instead.

There are specific rules for determining income tax rates in Lithuania, which includes identifying sources of income and types of taxpayers. All of them eventually lead to distinguishing two types of the income tax contributions – Corporate Income Tax and Personal Income Tax. Both of them are administered by the State Tax Inspectorate.

Although the standard Lithuanian tax year runs from the 1st of January to the 31st of December, a different 12-month tax period may be set for a taxpayer who makes such a request, provided that the characteristics of the economic activities justify it.

Corporate Income Tax

Lithuanian and foreign companies are subject to paying Corporate Income Tax contributions to the Lithuanian government. A company is considered Lithuanian if it’s been incorporated in Lithuania. The basic Corporate Income Tax rate is 15%, but a variety of allowances may apply to different types of businesses.

All income sourced by Lithuanian companies inside and outside of Lithuania is taxable, except for the income earned from economic activities carried out through permanent establishments based in the EEA and in the countries which Lithuania has double-taxation avoidance agreements with.

Foreign companies are required to pay corporate taxes for the following income:

• Income earned from economic activities carried out through permanent establishments located in Lithuania.
• Income earned from international telecommunications managed through permanent establishments in Lithuania, as well as 50% of income from transport operations which begin in Lithuania and end in foreign countries and vice versa.
• Income earned in foreign countries attributable to the economic activities carried out by a foreign company through permanent establishments based in Lithuania.
• Income sourced in Lithuania and received by a foreign company otherwise than through permanent establishments located in Lithuania.

Certain businesses are entitled to pay lower income tax contributions. For example, the following companies can have the benefit of paying tax at 5% rate:

• Companies whose profits are generated from commercialised R&D inventions.
• Companies with more than 50% of income sourced from agricultural activities during the tax period, including income sourced by cooperatives from the sales of agricultural products acquired from or produced by their own members.
• Companies whose average number of employees doesn’t exceed 10 people and income during the tax period doesn’t exceed 300,000 EUR, as long as their shareholders are only natural persons and their economic activities aren’t suspended, the company isn’t liquidated, and the shares aren’t transferred over to new shareholders for 3 consecutive tax periods, including the first tax period.

When planning the administration of the Corporate Income Tax contributions, it’s important to note that annual Corporate Income Tax returns must be declared within 5 months and 15 days after the end of a taxable period. Also, with the exception of the companies whose annual taxable income of the previous period didn’t exceed 300,000 EUR, everyone must prepay Corporate Income Tax instalments based on the results of the previous taxable periods or the expected result of the current period.

Optimising your tax contributions is one of the key elements for sustaining and enhancing your business growth. If you wish to learn more about the Corporate Income Tax rates and allowances available in Lithuania, our dedicated experts will be pleased to provide a personalised consultation. Contact us today to book an appointment.

Personal Income Tax

The obligation to pay and the rate of the Personal Income Tax are determined by the individual’s residence status and the amount of income. Permanent and non-permanent residents of Lithuania are obligated to pay Personal Income Tax contributions at the rate of 20% if their annual income doesn’t exceed 8,1162 EUR. Those whose annual income exceeds 8,1162 EUR, must pay the tax at the rate of 32%. Reduced tax rate tariffs may apply to paternal leave, sick pay, dividends, self-employment and other types of income.

You will know that you’re a permanent resident of Lithuania when:

• You are present in Lithuania for at least 183 days during the tax period.
• You are present in Lithuania for at least 280 days during two successive tax periods, and you stay in Lithuania for at least 90 days in any of such tax periods.

As for the sources of income, permanent residents of Lithuania are subject to paying Personal Income Tax contributions for the income earned inside and outside of Lithuania.

Non-permanent residents are obligated to pay such taxes for the following income sourced in Lithuania:

• Employment relations
• Self-employment on a fixed base
• Interest, except for non-equity government securities
• Distributions and payments to the members of the Management Board and Supervisory Board
• Rent for Lithuanian immovable property
• Royalties
• Sports activities
• Performance activities
• Ownership transfer of Lithuania-registered movable property and Lithuanian real estate
• Compensation for infringements of copyright or related rights

When it comes to tax exemptions in Lithuania, there are a number of deductible expenses such as pension contributions and home repair as well as a certain amount of employment income that aren’t taxable.

Company in Lithuania UAB is eager to contribute to the development of Lithuanian economy through the legal support of businesses and individuals. We are pleased to offer tailored taxation advice to everyone who is interested either in growing a business or in residing in Lithuania. We also provide financial accounting services, as well as offer virtual office solutions to those who’re looking to optimise their business costs.